By the Court.—These two petitions were heard together and are being disposed of by a common judgment. They arise out of proceedings initiated under Section 147 of the Income Tax Act against the petitioner for the assessment years 2000-2001 and 2001-2002.

2. The petitioner is a public limited company registered under the Companies Act. It is engaged in the business of manufacturing of yarn and knitted fabrics from its industrial undertaking situate in District Mathura. The petitioner claims that it is a 100% Export Oriented Unit, (the EOU) and its income is exempt under Section 10 B of the Act. For the relevant assessment years, the assessments were completed under Section 143(1). Alongwith the Income Tax Return, audited statement of account for the relevant assessment years alongwith the report of the statutory auditors under the Companies Act, Tax Audit Report under Section 44-AB of the Act and statement showing computation of income were filed by the petitioner. Subsequent thereto, notices for reassessment for these two years were issued by the Assessing Officer on the ground that the income has escaped assessment to tax. In response to the notice, returns of income have been filed. A copy of the reasons recorded by the Assessing Officer was served on the petitioner. The present petitions have been filed questioning the legality and validity of the initiation of reassessment proceedings on the ground that there is no sufficient material on the record to form a reason to believe that income of the petitioner has escaped assessment.

3. In the counter-affidavit, the Department has sought to justify its stand. The claim of the petitioner that it is 100% EOU and is covered under the provisions of Section 10 B of the Act has been disputed.

4. Heard Shri S.K.Garg alongwith Shri Ashish Bansal learned counsel for the petitioner and Shri Ashok Kumar, learned counsel for the respondent.

5. Shri Garg raised the following points for determination in the present writ petitions :

(I) A notice dated 13.5.2003 was issued earlier on the basis of the reasons recorded on 12.5.2003. The said notice was withdrawn and thereafter the impugned notice dated 6.6.2003 was issued. The impugned notice was issued on the basis of the reasons already recorded on 12.5.2003 and thereafter no fresh reasons were recorded and it is thus vitiated. In substance, the argument is that no fresh reasons prior to the issuance of the notice dated 6.6.2003 were recorded and therefore, the said notice is bad.

(ii) The objections raised by the Department with regard to the valuation of closing stock is no reason for initiation of reassessment proceeding. The accounts have been maintained as per the prescribed Accounting Standard. The Accounting Standard does not provide for the inclusion of Central Sales Tax (the CST), and excise duty in the value of the goods/raw material in the closing stock. The element of CST instead of being charged to the related profit and loss account, was being accounted for separately under the heard “CST Receivable” and in this manner the levy of CST did not form part of its “cost” and the profit and loss account. Similarly the excise duty was not payable by the petitioner as it is an EOU(Export Oriented Unit) unless the manufactured goods are sold in the local market. Resultantly, there is no material to form a belief that the income of the petitioner has escaped assessment.

6. In contra, Shri Ashok Kumar learned counsel for the respondent submits that the earlier notice dated 13.5.2003 was withdrawn as there was formal defect therein. The said notice by mistake did not bear the rubber stamp impression below the initials of the assessing officer. On objection being raised by the petitioner, it was thought prudent to withdraw the same and issue a fresh notice.

7. In reply to the second point, the learned counsel for the respondent submits that as per Section 145-A of the Act as introduced by the Finance Act No. 2 of 1998 with effect from